Landlord and Tenant Act 1987 and unfair service charges?

In the recent case of Morgan v Fletcher & others six leasehold owners (the "leaseholders") in a block containing of eight flats (the "block") applied to the LVT to vary retrospectively vary their leases.

The leaseholders argued that the service charge clauses in the leases were " not satisfactory" under section 35 of the Landlord and Tenant Act 1987 (LTA 1987). At the time of their application the total of the service charge proportions of all the leases amounted to 116% of the landlord's expenditure.

The landlord then went to vary the service charge provisions for the other two leasehold flats in the building, reducing the total service charge contributions for the building to 100% of the landlord's expenditure.

The LVT( rather logically ) adjusted the leases of the leaseholders to make the service charge contributions proportionate.

The freeholder appealed. The court allowed the appeal. It held that section 35 of the LTA 1987 was not intended to deal with unfairly disproportionate service charge provisions. It was only intended to deal with surplus contributions or a shortfall and not situations where the contribution amounted to 100% of the landlord's expenditure albeit the contribution proportions were unfair.

Even though the court the court expressed sympathy with the leaseholders, it could not retrospectively adjust their leases to rectify the unfair service charge since their circumstances operated outside the intention of the legislation. Accordingly the court was unable to interfere in the contractual freedom of the parties.

Conveyancers would do well to learn of of the difficulties when drafting fair service charge provisions, particularly where the individual flats are of disproportionate proportions.